What is..... Whole of life insurance Cover

As per the definition on our home page whole of life insurance cover is a life insurance policy that provides a payment on death regardless when death actually occurs.

Before we continue it is important to explain how a whole of life policy actually works, to do this you need to understand what it is ultimately expected to do.

A whole of life policy is expected to pay out the life cover whenever death occurs that could be now when the life assured might only be in their twenties or it may be way into the future when they are in their nineties. With this huge unknown it is critical that the life company has sufficient monies to meet the cost not least for their members or shareholders sake but also for the beneficiaries of the life policy itself.

This is one of the reasons that most whole of life policies have an investment element within them.

This investment element is known as the fund.

The fund can be invested in a varying range of equity type investments such as life bonds and trusts and many other funds that the life company might manage.

The life company uses this fund as a cushion for the plan. Imagine running a business, you don't know how much you are going to make each year and you don't know how much you are going to spend, what would you do? Well the best way to manage this sort of situation is to ensure you have a healthy bank account that can meet any unforeseen cost throughout the year a sort of slush fund.

The whole of life insurance plan is just like a business it has an income in the form of premiums each month, and it has bills in the form of mortality deductions.
(mortality deductions are the deductions made on the contract to cover the ongoing risk of someone dying, mortality rates can change if the risk of people dying changes.)

So this is what the life fund is there for it is the life insurances bank account for the smooth running the plan. If things go to according to plan the fund will continue to grow throughout the term of the plan and represent a nice cash value into the future. However if things take a turn for the worse such as mortality rates increasing, then fund will be there to absorb most of the increased expenses that come up.

It is important to note that a whole of life contract is not a savings plan. The fund is there to benefit the plan, if there is money in the future and you are able to take it out that is great, but the plan is definitely not designed to do that. So if you want to take out a whole of life insurance plan to get a nice cash value in the future then it may not be the best vehicle to use.


 

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